Members of the Crookston City Council and city officials for some time have made it clear that they'd prefer to stay out of the "housing business" and let private developers take the lead whenever possible when it comes to building new homes. The problem is, CHEDA Executive Director Craig Hoiseth said at Thursday's annual meeting of the CHEDA board, even with two private developers, Bob Herkenhoff and Kevin Ross, along with the Northwest Minnesota Housing Cooperative, leading residential housing efforts at three different locations in the community, the city in 2012 issued less than a handful of building permits for new home construction.

With city-driven residential subdivisions like Evergreen Estates and Eickhof's Third Re-subdivision in the city's northeast corner essentially full, if the city was ever going to take the lead on the housing front once again, the land it owns around Crookston Sports Center has seemed like the most logical spot for a new neighborhood. The location seemed to make even more sense when previous sticker shock over the cost to get a new subdivision started north and east of the CSC was reduced significantly in 2012, when the city extended utilities to the north side of Fisher Avenue so that construction on Drafts Sports Bar & Grill could get underway.

Officials figured maybe a modified package of housing incentives would jump-start some building. The old package that was successful in spurring home construction in the northeast corner is kind of out of date now, with the housing crisis and the "Great Recession" resulting in would-be homeowners having a harder time getting the financing they need, mostly because they need to put up more equity up front.

But with the city's budget tight, when Hoiseth and City Administrator Tony Chladek were charged recently with the task of coming up with an updated package of housing incentives, they found themselves throwing the previous model out the window. Not only that, they determined that further extending utilities and putting in streets, etc. in preparation for a new subdivision around the CSC is still too big of an expense for the city to take on.

So they held "listening sessions" with various stakeholders. And they visited with private developers. What they learned, Hoiseth and Chladek told the CHEDA board at Valley Technology Park, is that local private developers aren't too concerned about the city jumping into the housing fray again.

As a result, as part of what is being called the "Crookston Homestead Act," the city is poised to strike a deal with one of the developers, Herkenhoff, that, if everything comes to fruition, would have him "donating" to the city 16 lots along the east side of Barrette Street – part of Herkenhoff's Nature's View Estates residential development – in return for various "tax advantages." It's part of "Phase 1" of the city's plan, Hoiseth said, with a "Phase 2" to come later.

Page 2 of 3 - The lots' average size would be 91 feet wide and 200 feet deep. Looking at similar efforts in neighboring cities, Mayor Dave Genereux said it would be enough for someone to build a house with a three-car garage.

Three of the lots, the ones closest to the parcel along Fisher Avenue that's been purchased by Bank Forward, have sewer and water lines extended to them. Public Works Director Pat Kelly estimates that utility work for the remaining 13 lots would cost around $80,000. That comes around to around $5,000 per lot. "For this," language in the first draft of the Crookston Homestead Act reads, "individuals acquiring the lots would have sewer, water, curb and gutter, paved roads, storm storm sewer to the river and no street assessment. The $5,000 would be waived in favor of accelerated development and/or elimination of existing two-year tax abatement."

Herkenhoff is willing to donate the necessary land in return for the consideration of property tax abatement on three parcels on Eickhof Boulevard, part of the first phase of his development. On those parcels, he'd build a single-family dwelling in 2013 for personal use and two duplexes to be leased at the market rate. The requested abatement is 15 years and would include the city, county and school district.

"It is important that Mr. Herkenhoff achieve an income tax benefit as a result of this donated land," the Homestead Act reads. The donated land's anticipated value is $176,000.

The idea behind the proposal is that people buy lots and build on them in relatively rapid fashion. Within three months of the issuance of a permit, a construction plan would have to be submitted, and construction would have to start within a year, with construction completed within 18 months. Ownership of the parcel would transfer from the city to the homebuyer once a mortgage is secured. If any of the timeline criteria aren't met, the property would revert back to the City of Crookston.

A new world and a new paradigm

Chladek said the changing housing and financing climate since the recession means it's too difficult for many people to get the financing they need to build a home, especially if they have to buy the lot, too. "The old tools are no longer effective; that fact cannot be understated," he said. "The debt load people have impacts what they'll get from lenders. They need more equity up front today than before; even for professionals, moving into a $200,000-plus home is very difficult."

While the city can't give people money to build a home, he said, the city can give them "capital" in the form of a lot on which to build.

"This allows an entity like the city to control some property and tell a person if you want to own and develop a parcel, we'll give it to you for nothing, with some strings attached," Hoiseth added. "This allows the city to get back into the development business, which scares some people, with the council on record saying it doesn't want to be in that business. Unfortunately, with that position, we're not seeing new homes being built. There's no vibrancy in the market, even with interest rates that should be spurring development."

Page 3 of 3 - Board members who commented Thursday liked what they heard.

Ross Matlack called it "great." Craig Morgan called it a "springboard" for housing development not just in the northeast corner but elsewhere in town.

Chamber President/CEO Shannon Stassen called it a "bold move" that should attract attention and spur excitement. "We hear a lot about the things going on in town, with a new bar and grill and hotel development, but housing continues to trump them all," he said. "We need housing."

Hoiseth stressed that the plan is simply in draft form right now and that there are hurdles to clear. "We need to see what will work and what won't," he said. "This is sort of a pilot project; we know we need to do things differently, so we're putting our toe in the water."